Investing.com -- JPMorgan said in a note Wednesday that investors in European defense are favoring companies with long-duration order books and products that are hard to replace, while marking down those whose technology could be displaced.
The European defense sector has underperformed local markets by about 6% this year on average, though with wide variation between individual stocks, analyst David Perry noted.
JPMorgan rates BAE Systems, Leonardo and Babcock Overweight, saying all three have those defensive characteristics.
Investors have significantly de-rated companies such as Rheinmetall, CSG and Renk on fears their technology could be displaced.
Not finding the right stocks? Our AI's list of investor-grade stock picks for October just dropped »
"The debate over technology displacement is complex and the answer will not be clear for many years," Perry wrote. He said the onus is on the affected companies to show their businesses have staying power, making investor events at Rheinmetall on Nov. 27 and Renk on Dec. 8 important.
JPMorgan placed MTU Aero Engines on Positive Catalyst Watch heading into its capital markets day on Nov. 30. Perry said the stock has lagged Rolls-Royce and Safran over the past three years because of the GTF engine recall, which cost MTU about $1 billion. However, he added that the recall should be largely complete by the end of 2026.
Leonardo was also placed on Positive Catalyst Watch ahead of an industrial plan update in March 2027, when JPMorgan expects higher cost savings and margin targets.
Rheinmetall was put on Negative Catalyst Watch. JPMorgan does not expect the company to cut its 2030 sales goal of 50 billion euros, though the bank's own forecast is 36.9 billion euros. It expects a shift in the mix toward newer products, which could lower earnings.
JPMorgan also said Rolls-Royce and Safran should remain strong performers over the medium term. "We see both as core holdings," wrote Perry.
Original Article
European Defence: JP Morgan's top ideas for Q4 2026 as technology risks rise
Eli Lilly stock rises on striking 23% weight loss in drug combo trial
Citi cautious on Dow and LyondellBasell: demand weakness caps polyethylene upside
